Faith in the gentle power of Europe
PRESIDENT OF THE SUPERVISORY BOARD OF THE ECB, THE BOCCONI ALUMNUS OF THE YEAR 2020 TALKS ABOUT HIMSELF. FROM THE BEGINNINGS AT THE BANK OF ITALY, TO THE INTRODUCTION OF STRESS TESTS, TO THE POSITION THAT SEES HIM TODAY AT THE FOREFRONT TO PREVENT THE WORLD PANDEMIC FROM BECOMING FATAL, EVEN FOR BANKSAndrea Enria, Chair of the Supervisory Board of the ECB, has been picked by the Bocconi community as the Bocconi Alumnus of the Year for 2020. His career as a banking regulator began at the Bank of Italy in 1988 when he was fresh out of Bocconi, and he has been at the forefront of banking supervision as it evolved from a national to a European endeavor. As the first Chairman of the European Banking Authority in 2011, he was responsible for standardizing banking regulation across Europe, and introduced the first “stress test” for European banks.
As President of the ECB’s Supervisory Board, you are Europe’s top banking regulator. Were you attracted to banking regulation as a student?
Banking regulation did not feature in universities’ curricula at the time. When the Bank of Italy told me in 1988 I had been accepted in a department called “programs and authorizations,” it sounded terribly bureaucratic. My god! I was more eager to focus on monetary issues and macroeconomics. But regulation turned out to be very exciting. The first Basel agreement had been finalized that year, on capital requirements. So I spent my first weeks in the office reading all the documents, getting up to speed. After that I helped with the second European Banking Directive in 1989, the directive that created the single market in banking. These two things came together to make a new set of banking laws. I was involved in the team that worked actively on the project.
You got your master’s degree in economics at Cambridge in 1989, the year the Berlin Wall fell, followed the dissolution of Yugoslavia and then the creation of EU single market in 1992. What did the EU mean to you back then?
While in Cambridge I came to know students from China (it was also the year of the Tiananmen protests), Yugoslavia and Chile. Our discussions were pretty intense. I saw new nationalisms taking shape, and new hopes of walls getting teared down. It was then that I started developing the belief that the European Union could lead to a peaceful revolution, as a “gentle power,” to use Tommaso Padoa Schioppa’s phrase, as an important driver for much-needed change in the whole continent. Of my most formative readings was the first volume of Altiero Spinelli’s autobiography, “How I Tried to Become Wise.” I was struck by how this communist who was arrested in fascist Italy and sent to confinement for ten years found the courage to detach himself from his party and become an early advocate of a federal Europe.
So the EU was a way to introduce reforms in Italy that politicians could not achieve?
I think it was a force for change in all countries, also an important instrument to bring about the change that was needed to Italy. When I left Bocconi in 1987 there was a lot of openness to new ideas. For the first time, the country was looking to understand how our neighbors in Europe were doing things. It was an important moment for change, modernizing the country, and for economic debate.
Did Bocconi play a role in opening up Italy to ideas from abroad?
I think so. The Italian economy at the time was characterized by massive government ownership of firms, including banks. There was a lack of competition. There was a need to inject dynamism into the economy. And I think Bocconi was a place where these ideas were taking shape. For the whole country.
Who are your favorite economists? Who shaped your thinking?
My thesis was on Piero Sraffa. The classics are important for me. When I was at university and at the Bank of Italy, I start admiring a lot Jean Tirole (Nobel prize winner in 2014) and his work on industrial organization and pioneering analyses of bank capital requirements, together with Mathias Dewatripon. As to financial economists, I would say Raghuram Rajan and Luigi Zingales, who was at Bocconi around my time. Also, Claudio Borio and Hyun Song Shin at the Bank of International Setlements have developed the best analyses of the failings that led to the financial crisis, and the solutions that were needed to address them.
In 1999 you left Bank of Italy for the European Central Bank in Frankfurt just shortly after it was set up. What was the atmosphere like?
Hyperactive, hyper exciting. When I joined, my family remained in Italy for 3-4 months. And I worked long days in the office. I would leave at 11 PM sometimes, and the offices would still be buzzing with activity. There was a lot of hard work and internal discussion. It was a really interesting place to work. And now there is the same thing with the Single Supervisory Mechanism. It was started in 2014. We had the chance to start from a blank sheet, and mix cultures and viewpoints.
You always seem to be around for a start-up.
I went to London in 2004 to set up the Committee of European Banking Supervisors as Secretary General. Then first Chairman of the European Banking Authority. I have been very lucky to be honest. I have always been in the first stages of the set up, when the work is most path-breaking.
What is your outlook for Europe’s Banking Union? Without a Europe-wide deposit insurance, it is still incomplete.
We are in a situation in which the institutional framework for banking union is not complete. Unfortunately there is a very strong divide between northern and southern countries, making an agreement very difficult to reach. I still hope that in the coming months we will find the right political momentum to complete banking union, or at least to commit to a clear roadmap.
You were named ECB Supervisory Board Chair in 2018. What are your goals?
My chairmanship here will be judged by how effectively we can respond to the pandemic in terms of its impact on European banks. This is the first time we face a pan-European crisis after the Banking Union. We want to be fast, effective and integrated at the European level, unlike what happened during the last crisis, when we were slow, not always effective, and certainly divided. In terms of impact on the banks, my greatest concern is that if the recovery of the economy is not going to be as sharp as we hoped, we could see a large number of small businesses defaulting, which would also mean more non-performing loans at banks. So the main concern here is asset quality, and we will have to focus quite a lot of our attention on that. In order to be more effective we have recently reorganized our structure to increase collaboration across areas and to improve collaboration between the national supervisors and the ECB.
For example?
We need to be very well coordinated in allocating resources to on-site inspections, which rely significant on staff from national authorities. At the moment on-site inspections are being reshaped due to the difficulty in travelling and working on-site. But allocating appropriate resources is essential to have a good grip on certain areas of risk. For example, with the pandemic we think it would be important to look at commercial real estate exposures of banks. And we need to launch a campaign in that area, and it would be important to have strong teams, including experts from national authorities.
Another example is cyber threats. To supervise them we need to coordinate our work to deploy the expertise of the entire EU area. There could be national supervisors that become centers of excellence in this area and provide services for the area as a whole. These are examples that could give you an idea of how we can work in a more integrated and collaborative way in the future.
What do you like about your job?
The dedication of my staff, and meeting young Europeans from all member states -- and many from Bocconi by the way. When I hear people talking about distant European bureaucrats in their ivory towers I get very annoyed. Because I see this young generation is so passionate and does so much to promote the European public interest.
What does Europe mean today?
I can say is that the driving force is the same of the origins: overcoming the resurgence of nationalism in Europe and promoting peace and a sense of community -- a common destiny, in some sense. We need to rediscover that sense of the origins. After monetary union, at times we have seen a return to a very intergovernmental way of operating, member states compromising and negotiating. It would be a good thing if we could recover a little bit the community spirit at the roots of the European Union.
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Andrea Enria, 59, graduated from Bocconi in 1987 with a degree in Economics. His dissertation was on Piero Sraffa’s contribution to Keynes’s General Theory, which was the British economist’s attempt to understand the Great Depression. “It became useful to me in later days,” he notes wryly. His dissertation won him a scholarship at the Bank of Italy and a job offer. His first year at Bocconi “was pretty tough.” The shy young student from La Spezia ended up living on the outskirts of Milan and struggled with the mathematics assignments that his humanistic education at a liceo classico had not prepared him for. “But this major challenge was important for me later on,” he notes. Enria started his studies in 1980, “the years of post-breakdown of Bretton Woods.” Oil shocks, inflation, and the search for a new international monetary order were the issues of the day. He recalls it as a very exciting time. “There was so much change, so much debate, and for Italy there was an opening up for international discussion. I attended Prof. Monti’s courses and followed his seminars.” Enria says Bocconi was useful for reasons that he considered a drawback at the time. “It was the wide background it gave me. At the time I thought studying law was boring. But since I became a regulator later in life it was very useful. And also doing accounting and business administration became useful as a regulator because I had to look at bank balance sheets.” What advice to you have to someone who is just entering Bocconi now? “Study hard, as if your life depends on it. Because actually it does.”
by Jennifer Clark
